Don’t delay in getting your accounts in order as we approach the end of the financial year.
The end of the financial year – it’s a time many businesses dread because it means additional time spent ensuring their accounts are up to date and in order.
From speaking with our customers, I know that for entrepreneurs and business owners, time is critical and you want to be spending as much of it as possible building the business or with your family. You have enough on your plate without the hassle of sorting through incomprehensible tax and financial matters.
Fortunately, with the advent of cloud-based accounting software designed specifically for small businesses and their trusted advisers – accountants and bookkeepers, year-end compliance can now be less taxing than ever before.
The end of the financial year signals a number of deduction opportunities as well as potential threats to cash flow so it’s time to be alert…but not alarmed.
Get in early and make an appointment with your accountant to discuss how to make the most of your tax position to help you get ahead. You and your accountant can estimate your likely tax position and come up with strategies that make sense for your business, and give you time to implement them.
Here, it’s important to note the Federal budget announcement on 13 May could affect small business, so be sure ask about its impact on future financial years.
Apart from seeking professional help, here are nine quick tips to help ease the 30 June burden.
(Please note that these tips apply to small businesses with less than $2 million annual turnover).
1. Be certain to get your super deductions. Even though superannuation doesn’t have to be paid until 28 July, paying employee and personal contributions by 30 June will allow time for processing delays and getting valuable deductions this year.
Note: According to The Australian Tax Office (ATO), superannuation is only deductible when paid. That means that it must be cleared through your bank account, received and recorded by the employee’s superannuation fund prior to that date. Be prepared; pay early.
2. Pay expenses in advance. If your cash flow allows it, consider paying recurring expenses in advance. Things like insurances, interest, rent, conference fees, subscriptions, travel costs can mean an immediate deduction. If you expect your tax pay will be higher this year than next year, you may benefit from deferring income to next year and accelerating deductions into this year. Using credit cards to pay for tax-deductible expenditures will earn you the deduction this year, even if you don’t pay for it until next year.
Note: The expense may not be eligible if it covers more than 12 months.
3. Claim deductions now for future expenses. You may be entitled to claim an immediate deduction for expenses you are committed to, goods or services that have been received or work performed – even if won’t happen before 30 June. This includes salaries and wages, staff bonuses and directors’ fees.
4. Spend up! But only if you need to. If you need to replace low-cost equipment or purchase new tools, computers or other equipment soon, consider purchasing them before 30 June to get the full tax benefit now.
Note: You may only receive a $300 benefit for every $1,000 spent. Always check the ATO website for the latest updates.
5. Write off bad debts. To deduct bad debts, the ATO requires you to write it off while it still exists, prior to 30 June. Review your accounts receivable with your accountant or bookkeeper to determine whether a deduction qualifies before the deadline.
6. Check your assets and inventory. Consider writing down or writing off obsolete stock. Then think about revaluing the remaining stock using one of three methods: cost price, market selling value or replacement value. Choose the method that produces the lowest stock value; if the value of closing stock is less than the value of your opening stock, you may receive a deduction. When the reverse occurs, you may generate income.
7. Repay any borrowings. If you, a family member or an associate have borrowed money from your business, you should ensure that the company charges the appropriate interest and consider making the minimum required repayments before the end of the financial year.
Note: Failure to do so may result in the entire amount of the loan being treated as taxable income, causing you to be taxed personally at rates of up to 46.5 per cent.
8. Pay on time and don’t over-claim. Unpaid taxes and fraudulent claims are serious business. The Australian Tax Office is actively looking to recover $17.7 billion, with 60 per cent of that – some $10.6 billion – owed by small businesses. It’s critical to submit accurate returns and pay on time.
9. Use expertise not guesswork. Don’t forget that the ATO site is an extremely useful resource for small to medium businesses. You should always consult a qualified accountant before making any decisions that may have a bearing on tax obligations.
Brad Paterson, vice president and managing director of Intuit APAC